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Who Benefits in This Crucial Obamacare Market?

Medicaid continues to grow under the Affordable Care Act's expansion of the health program for poor Americans and will have a greater impact on the uninsured than private coverage under the law, a parade of new reports are showing.

And that's good news for health insurance companies that placed a big bet on the law's expanded Medicaid business opportunity.

Health plans may begin to show additional signs of even greater improvement in their Medicaid business as they report their second-quarter earnings beginning this month. Unlike the limited open enrollment period for Americans looking to sign up for private coverage under the health law, people can sign up for Medicaid coverage pretty much anytime.

But the numbers of Americans who purchased private coverage on the government-run exchanges has been clouded as to whether most are new customers given the millions of policies cancelled for individuals who had coverage that didn't comply with new regulations under the law.

The number of uninsured people in the U.S. fell by about 5.4 million at the same time adults covered by Medicaid grew about 3.6 million between September 2013 and early March of this year, "suggesting many previously uninsured Americans gained insurance through the Affordable Care Act's expansion of the program," the study said.

"These early results suggest that increased Medicaid enrollment has been the biggest single component of the coverage expansion thus far," said Katherine Hempstead of the Robert Wood Johnson Foundation in a statement accompanying the Urban Institute report.

The Urban Institute said the health law "set a nationwide standard for extending Medicaid eligibility to nearly all Americans under age 65 with family income up to 138 percent of the federal poverty level" or about $16,100 for an individual. "Before the ACA, Medicaid coverage options for low-income adults were limited in most states," the Urban Institute report said.

Health insurers like Humana(NYSE:HUM), Centene(NYSE:CNC) and Molina(NYSE:MOH) have already reported unprecedented growth in their Medicaid business thanks to the health law. Other health plans with Medicaid business could also benefit like Wellpoint, Aetna, and UnitedHealth Group.

Going forward, the growth isn't expected to subside even as politics and related opposition to President Obama's signature legislative achievement remain in about half of U.S. states.

There have been 26 states that have decided against going along with the Medicaid expansion. Last summer's U.S. Supreme Court decision that upheld the ACA still allowed states to opt out of the Medicaid expansion.

Still, 38 states and the District of Columbia contract with health insurance companies to help manage their insurance programs for the poor so private health plans are benefiting from Medicaid in multiple ways.

Investors should be confident that the numbers can only grow even if Republican-leaning states that have opposed expansion continue to do so. Even before the health law, more and more states were handing off management of their Medicaid programs to private insurers.

Earlier this year, Washington health policy and research firm Avalere Health projected enrollment in health plans that have contracts with Medicaid would rise by 20% this year and by almost 40% from 2013 to 2016.

But the financial opportunity is looking more like private companies will pressure the holdout states to expand.

Historically, states and the federal government split the tab for Medicaid coverage. But under the health law, the federal government picks up the entire cost for the first three years with states gradually picking up some costs in 2017 but, the federal government still picks up most of the costs and, by 2020, the federal government is still paying for 90% of the expansion.

"In expansion states, hospitals are experiencing strong growth in Medicaid patient volumes and a drop in uninsured patient volumes," a report this week from Fitch Ratings said. "Despite political hurdles, Fitch believes more states will join the expansion in the near term. The financial incentive is likely to prove hard to ignore as is the federal government's flexibility in granting waivers for states to adopt creative solutions to expansion programs."

Author

Bruce Japsen is a veteran health care journalist. In addition to his columns for Motley Fool, he is a regular contributor to Forbes and is the author of the new book, "Inside Obamacare: The Fix for the Nation's Ailing Health Care System," which is part of Forbes' signature series of ebooks this year. He is also a regular contributor to the New York Times, Chicago Medicine magazine, and Life Matters Media. He contributes analysis on the Affordable Care Act and other health care topics for CBS’ WBBM in Chicago, PBS affiliate WTTW's Chicago Tonight and Fox News' Forbes on Fox, among other radio and TV outlets. He teaches at Loyola University Chicago and the University of Iowa Journalism School's Masters in Strategic Communication program.